European Commission proposes new settlement procedure for cartels

The European Commission has consulted on a new proposed procedure to allow for settlements in cartel cases. Companies will have the opportunity to receive a reduction in fines in return for admitting liability and their involvement in a cartel and thereby speeding up the processes leading to a final decision. The Commission hopes to adopt this new procedure in 2008 so that it can free up resources to pursue more cases.

The European Commission (the “Commission”) published for consultation on 26 October 2007 a draft legislative package which would introduce a procedure for settlement of cartels. The parties to a settlement would receive a reduction in fine in return for admitting liability and agreeing to a faster and simplified procedure. The Commission would also benefit from faster proceedings as this would free up resources to allow them to pursue more cases. It is clear from recent cartel cases that it can take as long as six years for the Commission to issue a decision from the start of the investigation. The Commission also hopes that settlements could reduce litigation in cartel cases on the basis that companies usually dispute the amount of fines, procedural issues and liability of parent companies for their subsidiaries’ activities rather than actual liability or involvement in the cartel.

The Commission has emphasised that the settlement procedure will not affect the leniency procedure by which parties can apply for complete immunity or a reduction in fines. Leniency procedures relate to the initial stages of an investigation where companies can voluntarily provide evidence which triggers or advances the Commission’s cartel investigation. In contrast settlements will affect the procedure leading to the adoption of a final decision. Companies will still have a strong incentive to apply for leniency even if they later decide to settle, although it is questionable whether a company that has received conditional full immunity from fines under the leniency program will have anything to gain from a settlement. Companies who only receive partial immunity under the leniency regime will perhaps want to use the settlement procedure to get a further reduction in fine and earlier resolution of their case. However, it is not clear whether settlement could expose companies to greater liability in private damages actions or at least accelerate the likelihood of damages actions.

The Commission will retain wide discretion to decide whether settlement will be suitable for a particular cartel case. In particular this will depend on the ability of the Commission and the parties to reach a common understanding on the scope of the case. It remains to be seen how this will work in practice. It should be noted that the Commission cannot impose a settlement on a company and companies have to make a request for the Commission to start settlement discussions with them. Also the proposals do not indicate how much the potential reduction in fines is likely to be. However, the guidance is clear that all parties settling in the same case will receive an equivalent reduction in fine because their contribution to procedural savings will be the same.

The Commission is not proposing to introduce a form of plea-bargaining and has clearly stated that it will not negotiate or bargain the use of evidence or sanctions. However, settlements or expedited procedures have been successfully used in both the UK and The Netherlands to reach a swifter conclusion in recent cases concerning schools, supermarkets/dairy processors and the construction industry. Not all parties in these cases chose to settle and it will be interesting in future to see whether companies differing strategies have an impact on the overall success of the settlement procedure and cartel victims’ ability to bring damages actions.